U.S. Treasury Securities: Bills, Notes, Bonds & STRIPS

Published: April 8, 2026

Article by Ryan O'Connell, CFA, FRM

U.S. Treasury securities are the foundation of global fixed income markets. Backed by the full faith and credit of the United States government, these securities serve as the benchmark for pricing virtually all other debt instruments worldwide. Whether you’re building a bond portfolio, studying for the CFA exam, or analyzing interest rate risk, understanding Treasury securities is essential. This guide covers everything you need to know — the different types of Treasuries, how they trade, how auctions work, and how to analyze Treasury yields.

What Are Treasury Securities?

Treasury securities are debt instruments issued by the U.S. Department of the Treasury to finance government spending. They represent a direct obligation of the U.S. government and are considered the safest investments in the world — carrying virtually zero credit risk.

Because of their exceptional safety, Treasury yields serve as the risk-free rate benchmark in finance. When analysts calculate the cost of equity using the CAPM, estimate bond spreads, or price derivatives, they start with Treasury yields as the baseline. All other securities are priced relative to Treasuries based on their additional credit risk, liquidity risk, and other factors.

Each Treasury security is assigned a unique CUSIP identifier — a nine-character alphanumeric code that allows traders and settlement systems to identify the exact security. The first six characters identify the issuer (the U.S. Treasury), while the remaining characters specify the particular issue.

Treasury securities come in three main categories based on maturity: Treasury bills (one year or less), Treasury notes (2 to 10 years), and Treasury bonds (more than 10 years). Each serves different investor needs and behaves differently as interest rates change.

Treasury Bills

Treasury bills (T-bills) are short-term discount securities with original maturities of one year or less. Unlike notes and bonds, T-bills do not pay periodic interest. Instead, they are issued at a discount to face value and mature at par — the difference represents the investor’s return.

T-bills are classified as money market instruments and are extremely liquid. They are popular with corporate treasurers, money market funds, and investors seeking a safe place to park cash. Because they mature in less than a year, T-bills have minimal interest rate risk compared to longer-term Treasuries.

Treasury Notes

Treasury notes (T-notes) are intermediate-term coupon securities with original maturities between 2 and 10 years. They pay interest every six months (semiannually) and return the principal at maturity. T-notes are the most actively traded Treasury securities, accounting for over half of all marketable Treasury debt outstanding.

The 10-year Treasury note is the most important benchmark security in the bond market. Its yield is closely watched by investors worldwide and directly influences mortgage rates, corporate bond pricing, and economic policy decisions. When financial news reports “Treasury yields,” they typically mean the 10-year note yield.

Treasury Bonds

Treasury bonds (T-bonds) are long-term coupon securities with original maturities greater than 10 years. Currently, the Treasury issues 20-year and 30-year bonds. Like T-notes, they pay semiannual interest and return principal at maturity.

Because of their long maturity, Treasury bonds are highly sensitive to interest rate changes. This makes T-bonds attractive to investors who want to lock in rates for extended periods, but also exposes them to significant price volatility when rates move. For a detailed treatment of interest rate sensitivity, see our guide on bond pricing and yield to maturity.

Key characteristics of Treasury bonds:

• Longest maturity among Treasury securities (20-30 years)
• Popular with pension funds and insurance companies for liability matching
• No callable Treasury bonds have been issued since 1984
• 30-year bond yield is a key indicator of long-term inflation expectations

Some older Treasury bonds issued before 1985 had call provisions allowing the Treasury to redeem them before maturity. However, all Treasury securities issued today are non-callable, giving investors certainty about their cash flow timing.

Treasury STRIPS

Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) are zero-coupon securities created by separating the interest and principal components of Treasury notes and bonds. Each coupon payment and the final principal payment become individual zero-coupon securities that can be traded separately.

For example, a 10-year Treasury note with semiannual coupons can be “stripped” into 21 separate zero-coupon securities: 20 coupon strips (one for each semiannual payment) and one principal strip. Each strip trades at a discount to its face value based on prevailing interest rates.

STRIPS are particularly popular with pension funds and insurance companies that need to match specific future liabilities. They’re also used to construct the spot rate curve, which is essential for pricing other fixed income securities. For a deeper treatment of how STRIPS work and how to analyze them, see our article on Treasury STRIPS and Auctions.

On-the-Run vs Off-the-Run

The Treasury market distinguishes between on-the-run and off-the-run securities. This distinction matters significantly for trading, pricing, and portfolio construction.

On-the-run securities account for approximately 60-70% of daily Treasury trading volume despite representing a small fraction of total outstanding debt. The on-the-run/off-the-run spread — the yield difference between the newest and older issues of the same maturity — is a closely watched indicator of market liquidity conditions.

During periods of market stress, investors flee to on-the-run Treasuries, causing the spread to widen. Hedge funds sometimes exploit this spread through relative value strategies, buying cheaper off-the-run securities while shorting on-the-run issues and waiting for the spread to narrow.

Primary Dealers and Market Structure

The Treasury market operates through a network of primary dealers — large financial institutions that maintain a direct trading relationship with the Federal Reserve Bank of New York. Primary dealers are required to participate meaningfully in Treasury auctions and make markets in Treasury securities.

Primary dealer responsibilities include:

• Bidding in every Treasury auction
• Making two-way markets to the Fed’s trading desk
• Providing market intelligence and commentary
• Maintaining adequate capital levels
• Supporting the liquidity of the Treasury market

As of 2024, there are approximately 24 primary dealers, including major banks like JPMorgan Chase, Goldman Sachs, and Bank of America, as well as broker-dealers like Cantor Fitzgerald and Jefferies. No single bidder can be awarded more than 35% of any Treasury auction, a rule implemented after the 1991 Salomon Brothers scandal.

The secondary market for Treasuries is an over-the-counter (OTC) market operating nearly 24 hours a day globally. Most trading occurs through electronic platforms like BrokerTec and Tradeweb, with interdealer trading typically in minimum sizes of $1 million for notes and bonds.

Treasury Auctions

The Treasury sells new securities through a single-price sealed-bid auction process. This uniform-price format means all winning bidders pay the same price — the highest yield (lowest price) needed to sell the entire offering.

Key auction metrics investors watch:

• Bid-to-cover ratio: Total bids divided by amount offered — higher ratios indicate stronger demand
• Stop-out yield: The highest yield accepted — compared to pre-auction when-issued levels
• Tail: The difference between the stop-out yield and the when-issued yield — a large tail suggests weak demand
• Indirect bidders: Foreign central banks and institutional investors — high indirect demand signals global confidence

The Treasury maintains a regular, predictable auction schedule, typically issuing bills weekly and notes monthly. This predictability helps market participants plan their portfolios and reduces uncertainty about government funding.

How to Analyze Treasury Yields

Understanding Treasury yields is essential for fixed income analysis. The yield represents the total return an investor earns by holding a Treasury security to maturity, accounting for both coupon payments and any price difference from par.

For coupon-bearing Treasuries, the yield to maturity (YTM) is the discount rate that equates the present value of all future cash flows to the current market price. This calculation accounts for the time value of money and allows comparison across securities with different coupons and maturities. For detailed bond pricing calculations and yield formulas, see our comprehensive guide on bond pricing and yield to maturity.

Key yield concepts for Treasury analysis:

• Nominal yield: The stated coupon rate on the security
• Current yield: Annual coupon divided by current price
• Yield to maturity: Total return if held to maturity
• Real yield: Treasury yield minus expected inflation — available directly from TIPS

Treasury yields are influenced by Federal Reserve policy, inflation expectations, economic growth, and global demand for safe assets. The relationship between yields and maturities forms the Treasury yield curve, which is covered in detail in our article on spot rates and forward rates.

Treasury Notes vs Treasury Bonds

While both T-notes and T-bonds are coupon-bearing securities backed by the full faith and credit of the U.S. government, they differ in important ways that affect investment decisions.

Choosing between notes and bonds depends on your investment horizon, interest rate outlook, and risk tolerance. Notes offer more stability and liquidity, while bonds provide higher yields and greater exposure to long-term rate movements.

Limitations

Despite their safety and liquidity advantages, Treasury securities have several limitations investors should understand:

1. Interest Rate Risk — Treasury prices move inversely to yields. Long-term bonds can experience significant price declines when rates rise. The 2022 rate hiking cycle caused substantial losses in Treasury portfolios.

2. Inflation Risk — Fixed coupon payments lose purchasing power when inflation exceeds expectations. Standard Treasuries offer no inflation protection (though TIPS do).

3. Low Real Returns — In many periods, Treasury yields barely exceed inflation, resulting in minimal real returns. Investors seeking higher returns must accept credit or other risks.

4. Opportunity Cost — Capital invested in Treasuries cannot earn potentially higher returns in stocks, corporate bonds, or other assets. This trade-off is most significant for long-term investors.

5. Reinvestment Risk — When Treasury securities mature or pay coupons, investors may need to reinvest at lower prevailing rates. This risk is eliminated with STRIPS but present with coupon-bearing securities.

Common Mistakes

Investors new to Treasury securities often make these errors:

1. Ignoring Interest Rate Sensitivity — Buying long-term bonds without understanding their price volatility. A 30-year Treasury can experience significant price swings when rates move.

2. Confusing Yield Types — T-bill discount yields, bond equivalent yields, and yield to maturity are calculated differently. Using the wrong yield can lead to poor investment decisions.

3. Chasing Yield Without Considering Risk — Buying longer maturities solely for higher yields without considering whether the additional return justifies the additional price volatility.

4. Treating All Treasuries as Interchangeable — On-the-run and off-the-run securities of the same maturity can have meaningfully different yields and liquidity.

5. Neglecting Tax Implications — Treasury interest is exempt from state and local taxes but subject to federal income tax. This makes Treasuries more attractive in high-tax states.

6. Assuming Zero Risk — While credit risk is essentially zero, interest rate and inflation risks can cause significant losses. “Risk-free” refers only to default risk.